Touche Ross Assailed on Audit of S&L; : House Panel Blasts Firm’s Review of Beverly Hills Thrift

Congressional investigators Wednesday assailed as “imprudent” and “irresponsible” the decision of an independent auditor to award a clean bill of health to Beverly Hills Savings & Loan in April, 1984, barely a year before it was declared insolvent.

The auditing firm, Touche Ross, should have realized that the S&L; was risking insolvency through its “reckless management and high-risk investments, in which the rate of return was measured in dreams rather than dollars,” said Rep. John D. Dingell (D-Mich.), chairman of the House Energy and Commerce oversight subcommittee.

The accusations by Dingell and Rep. Ron Wyden (D-Ore.), a subcommittee member, were made as the panel concluded its investigation into events leading to the thrift’s failure and its takeover by the government last April 24.

“I detect that you were really a group of good-hearted, trusting folk,” Dingell told Touche Ross representatives, adding that he would prefer that auditors be “hard-nosed skinflints.”

Law firms and bank examiners who reviewed the activities at Beverly Hills S&L; were also aware of the problems, he said, but took no action to stop them. The cost to taxpayers of the Beverly Hills bail-out already has topped $140 million, he said, and more federal assistance will probably be needed.

Touche Ross representatives said that their reviews of Beverly Hills’ loans and records through the end of 1983 never gave them reason to suspect that the thrift might not survive.

The firm’s “unqualified opinion” giving the thrift a clean bill of health was issued after the S&L; had altered its official relationship with Southern California developer James D. Stout. The change allowed the thrift to classify millions of dollars that it had invested in money-losing ventures with Stout as “loans receivable,” bolstering Beverly Hills’ apparent strength but pushing it nearer to collapse a year later.

Nelson Gibbs, who supervised the audits from Touche Ross’ Los Angeles office, said that, although his firm remained under contract with Beverly Hills until last November, its auditors did not have knowledge of any action taken by the thrift after Dec. 31, 1983.

Sloppy record-keeping by the thrift delayed completion of the 1983 audit, which was not released until April, 1984. And when the auditing firm’s contract was canceled last November, it had just begun its review of Beverly Hills’ 1984 records, Gibbs said.